mikes1531
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Post by mikes1531 on Dec 4, 2016 14:31:20 GMT
I have today sold a loan with less than 40 days remaining with a -0.1% discount. Discounts of greater than 1% are only normally needed for poor quality loans that shouldn't have been puchased in the first place, or very large loans... mrclondon : May I ask which loan it was that you managed to sell at such a small discount? In current market conditions, very little sticks around for long above 19% / 20% and most loans are trading well at a lot lower than that (15%+). I guess I must be investing in the 'wrong type of loan', because I don't think I've sold anything with less than a 0.7% discount since the very earliest days of the FS SM. Most of what I sell seems to require a discount of more like 0.9% or 1%, which produces an effective rate (pre-tax) for the buyer of 19-20% (as SteveT suggests). Not that I'm complaining. I'm happy to sell at those prices so that I can transfer my investment into a new loan I fancy, before it's fully funded. As a tax payer I would want considerably more than 1% to assume ALL default And tax liabilities to let the rich off scott free. I agree. The fact that it generally isn't necessary to offer such large discounts suggests that either there are a lot of people with company accounts buying, or non-taxpayers buying, or people buying who still don't understand the impact of tax on parts purchased on the FS SM by ordinary taxpayers.
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Post by mrclondon on Dec 4, 2016 15:00:43 GMT
mikes1531 It was the magna carta collectable. A small loan of £5000 at an apparent 50% LTV, so you could argue there should indeed be a massive untapped demand for it, but 12% yield, and on the last cycle (3rd renewal of the loan) it took the issuance of a default notice to get the borrower to provide funds for renewal. The risk of default must be substantially increased at the upcoming (4th) renewal. Not what I would call a good quality loan. OK, you correctly called me out for highlighting a relatively rare example of a -0.1% sale, however most non-property loans can be sold at c. 40 days for less than 0.5% discount. Perhaps more representative of my sales would be Herne Bay 5th Tranche, which I sold a £500 chunk of yesterday with a 0.7% discount. Its 12% yield with 59 days remaining so the discount is slightly less than the (basic rate) tax liability, and I bought it about a month ago with a 1.25% discount, leaving me with an overweight position in this loan, albeit one I regard as good quality.
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mikes1531
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Post by mikes1531 on Dec 4, 2016 19:51:13 GMT
mikes1531 It was the magna carta collectable. A small loan of £5000 at an apparent 50% LTV, so you could argue there should indeed be a massive untapped demand for it, but 12% yield, and on the last cycle (3rd renewal of the loan) it took the issuance of a default notice to get the borrower to provide funds for renewal. The risk of default must be substantially increased at the upcoming (4th) renewal. Not what I would call a good quality loan. Ah, yes, the 'Magna Carter' loan! (I have a chuckle every time I see the loan title.) Small non-property loans definitely are in short supply, so there ought to be demand even at a low discount. I have a small piece of that loan, so I've put a bit up for sale just to see if lightning will strike twice. As for that loan's default risk... I don't know whether a loan's risk is higher or lower after numerous renewals. I can see your logic for suggesting it's higher, but I also can see an argument that it could be lower since the borrower really must want to keep the item because they've renewed the loan in the past. If they were ambivalent, I might expect them to default after the first loan rather than putting more money in and then defaulting at a subsequent maturity. In that situation they'd have been wasting money on the intervening renewals. But logic probably has nothing to do with borrowers' decisions in these circumstances. OK, you correctly called me out for highlighting a relatively rare example of a -0.1% sale, however most non-property loans can be sold at c. 40 days for less than 0.5% discount. Perhaps more representative of my sales would be Herne Bay 5th Tranche, which I sold a £500 chunk of yesterday with a 0.7% discount. Its 12% yield with 59 days remaining so the discount is slightly less than the (basic rate) tax liability, and I bought it about a month ago with a 1.25% discount, leaving me with an overweight position in this loan, albeit one I regard as good quality. That looks like a very successful investment -- 0.55% gain in a month is 6.6% p.a. on top of the loan's 12% rate, so 18.6% pre-tax.
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SteveT
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Post by SteveT on Dec 5, 2016 9:25:12 GMT
There was a fairly dramatic shift in market sentiment over that short period, triggered by the decision by FS to start using underwriters in slow-filling renewals and release lender funds from the original loans. As a result, "best available" rates on the SM dropped markedly in a matter of 2 or 3 weeks as the wave of returned money snapped up the better SM bargains.
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keith
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Post by keith on Nov 23, 2017 19:25:49 GMT
I may be becoming dreadfully unfair to all and sundry but once bitten etc.......
So, the plan on 11/8 was to sell the properties for 180-200k each
On consolidation of the loans at 23/11, the plan is now to keep the properties as an ongoing source of income.
Is it just me that thinks that they couldn’t shift the properties and are now forced to hold on to them. Therefore, is not the LTV somewhat mythical?
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badersleg
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Post by badersleg on Nov 23, 2017 19:35:19 GMT
I don't know, but is this a case where people investing via a company should be buying up the current 7 loans at discount on the secondary market.
Tim
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Liz
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Post by Liz on Nov 23, 2017 19:40:36 GMT
I don't know, but is this a case where people investing via a company should be buying up the current 7 loans at discount on the secondary market. Tim ISA holders may want to consider to do so. I did @ 0.5% discount.
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sqh
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Before P2P, savers put a guinea in a piggy bank, now they smash the banks to become guinea pigs.
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Post by sqh on Nov 23, 2017 19:43:22 GMT
I don't know, but is this a case where people investing via a company should be buying up the current 7 loans at discount on the secondary market. Tim Or anyone with spare cash in their IFISA. Even a discount of 0.1% offers a discount of roughly 36.5% p.a for a day, but wait till after midnight and the effective interest rate becomes infinity (assuming the new loan fills and draws down tomorrow).
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sarahcount
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Post by sarahcount on Nov 23, 2017 20:44:27 GMT
I don't know, but is this a case where people investing via a company should be buying up the current 7 loans at discount on the secondary market. Tim Or anyone with spare cash in their IFISA. Even a discount of 0.1% offers a discount of roughly 36.5% p.a for a day, but wait till after midnight and the effective interest rate becomes infinity (assuming the new loan fills and draws down tomorrow). Yep just juggled some available funds between the various FS accounts that I manage so that the IFISA account can pick up loans at a small discount. Won't renew, not a fan of development loans here, so should get my money back tomorrow plus interest and the discount. You might say that it's a lot of work for a few pennies but I find it hard to resist free money however small. It's the satisfaction of working the system that appeals the most.
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IFISAcava
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Post by IFISAcava on Nov 23, 2017 20:49:12 GMT
Or anyone with spare cash in their IFISA. Even a discount of 0.1% offers a discount of roughly 36.5% p.a for a day, but wait till after midnight and the effective interest rate becomes infinity (assuming the new loan fills and draws down tomorrow). Yep just juggled some available funds between the various FS accounts that I manage so that the IFISA account can pick up loans at a small discount. Won't renew, not a fan of development loans here, so should get my money back tomorrow plus interest and the discount. You might say that it's a lot of work for a few pennies but I find it hard to resist free money however small. It's the satisfaction of working the system that appeals the most. There was £500 available at 0.1% discount, and I thought - is it really worth risking £500 (you never know, new loan might get withdrawn etc) for 50 p. And the answer was no. At 0.5% I'd probably have done it mind!
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sarahcount
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Post by sarahcount on Nov 23, 2017 20:58:32 GMT
Yep just juggled some available funds between the various FS accounts that I manage so that the IFISA account can pick up loans at a small discount. Won't renew, not a fan of development loans here, so should get my money back tomorrow plus interest and the discount. You might say that it's a lot of work for a few pennies but I find it hard to resist free money however small. It's the satisfaction of working the system that appeals the most. There was £500 available at 0.1% discount, and I thought - is it really worth risking £500 (you never know, new loan might get withdrawn etc) for 50 p. And the answer was no. At 0.5% I'd probably have done it mind! Yes I know there's always the risk of something unexpected. I've done the same buying up Lanark on Ly but am now wondering why COLL are taking their time pressing the button on the re-finance. I've also got a whole evening with no available funds on FS so will be kicking myself if any really good loans come up on the SM.
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Liz
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Post by Liz on Nov 23, 2017 21:42:04 GMT
Or anyone with spare cash in their IFISA. Even a discount of 0.1% offers a discount of roughly 36.5% p.a for a day, but wait till after midnight and the effective interest rate becomes infinity (assuming the new loan fills and draws down tomorrow). Yep just juggled some available funds between the various FS accounts that I manage so that the IFISA account can pick up loans at a small discount. Won't renew, not a fan of development loans here, so should get my money back tomorrow plus interest and the discount. You might say that it's a lot of work for a few pennies but I find it hard to resist free money however small. It's the satisfaction of working the system that appeals the most. This new loan is no longer a development loan as the properties are built; I would say it is now a bridging loan.
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sirius
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Post by sirius on Nov 23, 2017 21:42:50 GMT
I may be becoming dreadfully unfair to all and sundry but once bitten etc....... So, the plan on 11/8 was to sell the properties for 180-200k each On consolidation of the loans at 23/11, the plan is now to keep the properties as an ongoing source of income. Is it just me that thinks that they couldn’t shift the properties and are now forced to hold on to them. Therefore, is not the LTV somewhat mythical? Interest on £450k @ a conservative (for FS) 20% is £1800 a month. Rent from the 4 houses?.........around a third to a half of that, so the borrower needs those btl mortgages like yesterday, or how else will he service the interest?
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Liz
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Post by Liz on Nov 23, 2017 21:49:55 GMT
I may be becoming dreadfully unfair to all and sundry but once bitten etc....... So, the plan on 11/8 was to sell the properties for 180-200k each On consolidation of the loans at 23/11, the plan is now to keep the properties as an ongoing source of income. Is it just me that thinks that they couldn’t shift the properties and are now forced to hold on to them. Therefore, is not the LTV somewhat mythical? Interest on £450k @ a conservative (for FS) 20% is £1800 a month. Rent from the 4 houses?.........around a third to a half of that, so the borrower needs those btl mortgages like yesterday, or how else will he service the interest? I believe the properties are empty, so zero They should let at about 700pcm each, so £2800pcm vs around £7k per month due to FS and then the borrower may pocket the £2800k!
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michaelc
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Post by michaelc on Nov 23, 2017 23:18:57 GMT
If the borrower had a good business plan and track record he might have obtained funding from a high street bank.
That doesn't alter the fact that the security is possibly worth more than the loan.
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